The Interview of Mr. Kirill Komarov, JSC Atomenergoprom Executive Director, given to the Atomprom Vestnik magazine.

- This November, a decision was made to establish a united Fuel Company based on JSC TVEL to bring the enrichment plants and enterprises currently involved in the centrifuge production business together. Could you tell us about the reasons behind this decision?

- As you know, JSC Atomenergoprom was established in order to consolidate non-military nuclear assets. Having received equity stakes in more than 70 enterprises, we undertook to build an efficient asset management system. And in this light, the decision to form the Fuel Company is not exclusive, but one among multiple decisions that we make to create full-fledged divisions formed with due regard to the product-driven and market-driven principles.

It is important to select divisional assets in such a way that their consolidation brings about synergy. The factors to consider may be external, when consolidation yields better sales and a competitive edge in the global market, or internal, when through bringing the companies together, we can lower the costs, including the administrative expenses; promote internal efficiency and eliminate duplication. The establishment of the Fuel Company targets precisely the said objectives, both external and internal.

The Fuel Company will be able to meet to the demands and wishes of foreign customers most comprehensively and offer modern and technologically efficient nuclear fuel cycle products. At the same time, the Fuel Company will make launching global alliances with Western market players an easier task and establish the scientific component as a priority within the innovative development of the fuel production facilities.

The main task the Fuel Company's management will face is to provide an efficient channel for Russian-made products of nuclear fuel cycle into the global market. However, to be competitive in foreign markets, we must have an optimal internal configuration. Therefore, our second basic task is to optimize operation of the enterprises that will comprise the Fuel Company's administrative network. That means we must address the issues related to the non-core assets, along with operational efficiency, labor productivity, and product quality improvement.

- Why was JSC TVEL chosen to serve as the basic corporate structure for the new company?

- Why should we at all place the entire nuclear fuel cycle production within one company? It is important for us to offer the complete range of products that might be of interest for the customer in the global market. Ideally, we would like to sell products of the highest added-value possible, which is nuclear fuel in this case. Otherwise, customers should have the opportunity to pick what they want among our products: whether it is enriched uranium, conversion or enrichment services, or something else. Customers stick to different logic – some need a finished product, whereas others seek diversification or prefer to deal with different suppliers for different processing stages.

Now, let me explain why TVEL. We reckon that this company, among others of the nuclear fuel cycle, is best shaped to tackle the task which I specified as Task 2 (the optimization and promotion of the Fuel Company's efficiency – Atom-prom Vestnik magazine), only in order of enumeration, not in importance. JSC TVEL has been running an internal optimization program at its own subsidiaries for a number of years and has achieved good results. I believe that TVEL’s management team will be capable of meeting similar challenges after assuming control over the conversion, enrichment, and gas centrifuge producing businesses. They now have proven methods and a well-functioning optimization system in place, so they will not have to start from scratch.

TVEL has also been very successful internationally having won in a number of countries all the open bids it took part in. Long-term fuel supply contracts have been signed with nuclear power plants in Slovakia, the Czech Republic and Finland. TVEL's Indian partners, being satisfied with the attained level of cooperation, have made a long-term agreement for the supply of fuel pellets for reactors of various types.

While operating in foreign markets, JSC TVEL pays a lot of attention to the improvement of its own marketing mechanisms. The concept for a new marketing initiative –Regional Fuel Production Plant Outside Russia – has been developed along with the investment feasibility of the new marketing product. We hope that this project will prove to be beneficial for all the stakeholders.

JSC TVEL is also entering new markets with much confidence by offering fuel for Western-type reactors. The company is taking first practical steps towards having the new fuel tested and licensed abroad. 

TVEL has a substantial record of cooperation with global players in the global market of nuclear fuel products, including an almost 15-year old successful cooperation with AREVA in fabrication of fuel assemblies for different countries of Western Europe. Throughout the course of this cooperation, TVEL has not received any claims regrading the quality of its products.

Those are the reasons why JSC TVEL has been selected to provide the foundation for the newly established Fuel Company and Mr. Yu.A. Olenin, President of JSC TVEL, has been tasked to manage the company formation process.

- Does this mean that TVEL’s optimization process will be translated onto other businesses within the Fuel Company? 

- Solutions are never completely alike; every situation is unique with its own conditions and peculiar features. Every ROSATOM plant is exceptional and has its own background. Some of the facilities are located within restricted administrative and territorial entities with their inherent specific issues and additional social responsibility. Other enterprises enjoy a close proximity to big cities, which also has distinctive features of its own. Therefore, there will be no ready-made solutions as I have said earlier.

- Will TVEL retain its brand name, or will there be a change of name?

- The TVEL brand name will be preserved for sure, as it is a brand recognized worldwide and we have a strong determination to promote it even further.

- When do you think the Fuel Company's structure will be completely formed as targeted?

- Within the next year, we will transfer the stake in the Separation & Sublimation Complex, as well as in Russian Gas Centrifuge into the TVEL’s charter capital. These are the assets that are being already transferred under TVEL's control.  

But it is not yet the entire nuclear fuel cycle, as there is Atomredmetzoloto (ARMZ), another company, which has to be turned into a full-scale oremining holding company mining not only for uranium, but also for the associated minerals, possibly gold and other rare metals. ARMZ is now a self-sustaining entity and will continue to develop as such in the future.

- Will Techsnabexport become another part of Fuel Company?

- This decision will be made separately and with due regard to the production and economic needs. However, this is not an issue of the present, but a future day. Although, as far as Techsnabexport and TVEL brand names are concerned, they will remain intact regardless of the final shape and structure of the Fuel Company.

- How will the enriched uranium be exported then – through Techsna-bexport as before, or via the Fuel Company?

- We have no plans to change the current contracting mechanism. Techsna-bexport is a party to existing longterm contracts and keeps concluding new ones, and the company faces quite ambitious tasks in this regard.  

It also bears full responsibility for proper execution of the contracts. Again, we do not plan to amend the existing contracts in any way. The export contracts will, by no means, be affected in the course of the nuclear fuel cycle assets reorganization or consolidation.

Consolidation of the early-stage nuclear fuel cycle assets within the Fuel Company will provide additional guarantee for Techsnabexport’s long-term export commitments to foreign companies.

- How will the Fuel Company be managed - through Atomenergoprom or through Rosatom?

- Today, as a parallel process, we are also engaged in the reorganization of civilian assets of the Russian nuclear industry, therefore the control over nuclear businesses is being transferred from Atomenergoprom to Rosatom. Atomenergoprom will retain its status as a legal entity and as the holder of all its assets, but the actual control will be exercised by Rosatom.

- Considering the formation of the Fuel Company, its lowertier elements (combines, centrifuge manufacture plants) will be under a long chain of command. Will this affect the companies, since, obviously, at least the paper-work will be enormous?

- What we are doing today is making this very structure simpler. When reorganization is complete, there will be no managerial duplication left. We are moving towards a traditional three-tier management system. The Rosatom State Corporation will be at the very top and will be responsible for determining the strategy and development directions. The second tier will be occupied by TVEL as the operational company responsible for attaining specific business objectives. The lowest tier will be the manufacturing plants. We believe this model renders enough comfort and is not overly complicated. 

- Do you foresee a conversion to a single share for TVEL and the Fuel Company businesses in the longer term?

- We do not have any such plans at this moment, and frankly speaking, I do not even see any reason why the conversion to a single share may be needed. TVEL today is not a sole shareholder in all of its subsidiaries, but as it has the con-trolling stake in them all, there is really no problem.

- Will TVEL’s asset structure change in any way?

If we see any production need to incorporate some other assets into the Fuel Company's structure, we will certainly take appropriate decisions. However, there are no such plans now.

- What will happen to the International Uranium Enrichment Center (IUEC) and the Uranium Enrichment Center (UEC) projects? Will they become a part of the Fuel Company, or remain under Rosatom’s control?

- The State Corporation has already become a shareholder of IUEC through the purchase of shares from Techsnabexport. The UEC being a daughter company to Techsnabexport and Kazatomprom will retain its status for now. The UEC project will be implemented by its shareholders under Rosatom’s supervision and in close cooperation with the Fuel Company.

- What share of the global market will the Fuel Company have? Considering the asset portfolio, its main competitor will be the French Areva?

- Areva, among other things, possesses a machine-building cycle. We are forming a similar cycle within Atomenergomash.

Today, TVEL’s global market share is about 17%. We believe that the company has every opportunity to increase its fuel-making presence up to at least 25%.

As far as the enrichment services are concerned, we are, as of today, the global leader with 45% market share. Even just retaining the status quo in the market where the competition is very aggressive makes quite an ambitious task. How-ever, we are aiming to expand further in the markets, just like any other player.

- Is cross-border expansion on the Fuel Company's agenda?

- We can bring our technology to many of the world's countries and perform full or partial production localization there. The Fuel Company's geographical expansion is an exciting challenge that we undertake.

- Could you tell us in brief about other civilian divisions of the industry? Have their structure been generally shaped up already?

- Presently, we have quite a few processes going on in parallel. For instance, during all of this year we have been shaping Atomenergomash as the machine-building division. Similarly, The Rosenergoatom Concern has been identified to become the focal point for the electric-power division, and today we are engaged in its upscaling. As an illustration of this process, a decision has been made to hand over Atomenergoremont, a company far from being small, under Rosenergoatom's control.

 The major task for 2010 will be to form the engineering division, and we are planning to give this process a lot of attention next year.

I believe giving the final number of the divisions is premature at this stage. There are yet many issues and this is a subject for another discussion.